Other than the jokes and the photo ops, why are we here? To answer that we need to remind ourselves what export controls are and why they exist. They are the enforceable regulatory net over the export, reexport, and transfer by foreign and domestic persons of specific types of commodities, software, technology, and services to specific destinations, end uses, or end users for various national security and foreign policy reasons. Seriously, whenever you are doing an export control compliance analysis, keep that sentence in mind and diagram the transaction you are studying as the first step in determining any applicable regulatory requirements. What is the noun. What is the verb. What is the object of the preposition. What is the direct object. Try it. It works. I realize diagramming sentences might not be that exciting for some of.

Whatever method is appropriate for you to determine compliance, I want to thank you because, unless companies invest the time and resources to ensure compliance, the national security and foreign policy objectives of the controls are not furthered.

As with most areas of regulation, export controls are inherently complex. Some items and activities warrant strict controls, many warrant few controls, and others warrant a mix depending on the circumstances of a particular transaction. Not all destinations, end uses, and end users are of equal concern. Foreign policy concerns and priorities change over time. Technologies evolve. Newly developed technologies can be extremely sensitive; others morph from predominant military use to something that is in normal commercial use. Controls are needed on end uses and end users of concern even if the items involved are widely available or unsophisticated. Subtle differences in fact patterns or technical characteristics of a product can have significantly different outcomes in the scope of control. Most controls reflect compromises in wording and scope reached by dozens of like-minded countries in multilateral export control arrangements. All reflect consensus views of the law enforcement, national security, foreign policy, and economic security equities of multiple US government agencies, which makes amendments inherently difficult to accomplish. Finally, the controls are an aggregation of decades of individual statutory and regulatory decisions spread out over multiple government agencies written and edited by hundreds of different individuals that have accreted into the complex system we have today, which has created additional complexities.

In the abstract, there are, in the extreme, two ways to make the system vastly more simple -- require a license everywhere, all the time, always for all or all listed items or don't require a license at all unless specifically informed by the government. The former, of course, would impose a massive and devastating regulatory burden on exports and require the creation of a US Government export control infrastructure far larger than what we have today. The latter would not satisfy the national security and foreign policy objectives of the controls. There is thus an inherent tension in export

controls between simple, broad regulations that control too much and impose an excessive licensing burden, on the one hand, and tailored, detailed controls that control just the right amount but are initially more complex to work through, on the other. This is the daily challenge for export control policy makers -- deciding where the lines should be drawn.

Fully aware of this inherent tension, this Administration has focused on trying to tailor the controls to reduce the overall regulatory burden as much as possible in order to further the national security and foreign policy objectives of the controls. This manifested itself in the reform effort that Eric described. However, please don’t think of the four reform objectives he mentioned just as a historical description of why we did what we did. Use them as the standards by which the effort should be judged in the future. Have the revisions improved interoperability with our NATO and other close allies? Have they reduced incentives for those in allied countries to design out or avoid less sensitive US-origin content or services? Have they allowed the government to focus its licensing and enforcement resources on the items, end uses, end users, and destinations of more concern? Have the changes made the system more reliable and predictable? In other words, can confident compliance conclusions be based on law rather than lore? If so, then great. If not, then we need to fix whatever isn’t meeting the goals. The four objectives are thus a guidepost for all future efforts.

This means that even though we've finished the lion's share of the list and other ECR regulatory revisions, ECR will never really end because the objectives of the reform effort are now baked in to the system. The agencies will continue to identify, as precisely as possible, those items providing a significant military or intelligence capability and thus warranting control on the USML, with all other military and controlled dual-use items on the CCL. They will continue to review and adjust the controls to ensure they are clear, do not inadvertently control on the USML items in normal commercial use, and account for technological developments. This will all be done through the transparent process that we have already started with other categories.

The agencies will publish on a regular basis Notices of Inquiry asking for ideas. The agencies will review the response and their own ideas for how to improve the categories and the rules. Those ideas will be published as proposed rules for comment. The agencies will review the comments and then publish final rules to update the controls consistent with these objectives. All this work, by the way, is simultaneously fed through our Technical Advisory Committee and regime processes to be part of the ongoing effort to update regime-based dual-use controls.

To that end, we will publish in November a final rule that will update the controls for the first two groups of items revised under ECR – military aircraft and gas turbine engines. You will see when you read that rule that there are four basic things we are looking to with each regulatory update – (1) find and fix actual mistakes; (2) describe particular provisions more clearly if, based on their application since being published, we realize they could be written better; (3) increase controls based on new threats or emerging technologies of concern; and (4) decrease controls based on, for example, increased

commercialization of less sensitive items. This is a perfect example of how ECR is a process and a spirit, rather than a result.

An example of the positive benefits of ECR within the government pertains to the process for responding to commodity jurisdiction requests. State, of course, has the lead, but it shares them with Commerce and Defense for input. Most are addressed and resolved at the staff level without issue. Those that cannot be resolved at the staff level are eventually escalated to the Deputy Assistant Secretary level for discussion.

In the last year before the first category was revised, 2013, there were 23 DAS-level CJ meetings from January to August. From January to August of 2016, only two DAS-level CJ meetings were needed. And there has not been a need for an Assistant Secretary- level meeting in over a year to resolve jurisdictional disputes among the deputies. It seems clear that the staff-level CJ reviewers in State, Commerce, and Defense are able to agree upon jurisdiction determinations more easily after ECR. You may not always like the answers, but, at least we are spending significantly less time arguing about where something is controlled so that we can focus more time on other topics.

Yes, the agencies do not always agree on everything. I would be worried if they did because we, by design, have different perspectives, experiences, and equities. And, yes, there are definitely still some paragraphs that need to be fixed. The main point though is that ECR has helped produce a more reliable, predictable, and transparent structure that benefits all of us, whether inside or outside the government.

There are many non-US companies and representatives in the audience. Thank you for attending. As you well know, the EAR applies extraterritorially – the EAR follows items subject to the EAR wherever they are in the world. We realize that the EAR’s reexport controls are not laid out as cleanly as they could be and that there are many reexport control specific topics that need to be worked on next year, primarily the second incorporation rule, the direct product rule, and the application of the de minimis rules.

To help spot and think through reexport control specific topics, we're creating a Reexport Controls Working Group within the Technical Advisory Committees. The purpose of this group will be to provide advice on how BIS can better articulate and improve the reexport controls in the EAR.

In the meantime, however, we have done several things to assist non-US persons in complying with the EAR. A rule to become effective on November 15th will make it clear that U.S. exporters are required to supply on commercial invoices the classification of 600 series or 9x515 items exported under a BIS authorization. This will give non-US parties more confidence regarding the classification status of items they are receiving, although they are still ultimately responsible for complying with applicable reexport requirements. By the way, as part of the ongoing effort to harmonize the EAR and the ITAR wherever possible to reduce unnecessary regulatory friction, the control statements required by the EAR and the ITAR will be identical. And the documents on which they must be placed will be the same.

In the definitions rule, we clarified the scope of technology releases, including when a deemed reexport – the release of technology to foreign persons outside the United States – does and does not happen. Again, as part of the harmonization effort, we borrowed the approach the ITAR took a few years ago in allowing releases to bona fide full-time employees. We’ve also codified the scope of a technology site license and the extent to which it covers employees who are citizens or permanent residents of a different country. We also revised our regulations such that the sending, taking, or storing of technology or software is not an export or reexport if certain conditions are met, including the use of end-to-end encryption. This important change should address uncertainty around export control requirements and the use of cloud computing.

Also revised in the definitions rule is section 750.7, which now requires applicants to describe the scope of the license, including the conditions, to relevant non-US parties. The section also now states that the export, reexport, or transfer authorized by the license is limited to the items, end uses, and parties described in the license application and in line with the requirements of the EAR. This ends the practice of re-stating regulatory requirements on licenses, which streamlines BIS's licensing process and eliminates confusion created when some EAR requirements were called out but not others. Also, limiting conditions to only those that uniquely affect the requested transaction helps ensure that all parties are aware of their responsibilities. These changes have resulted in a significant decrease in unnecessary license conditions.

We’ve also removed requirements to obtain certain support documents, such as International Import Certificates, for license applications submitted to BIS. Such documents provided little utility when considering a license application, so the requirement did not justify the burden of requiring the non-U.S. consignee to obtain certain documents from its government and then send it to the license applicant.

When the licensing system was set up, most exports were of a thing in a box going from party A to party B for use by party C. So many controlled transactions now involve regular exchanges of commodities and data among multiple parties in multiple countries. So, as part of the general effort to update the system, we’ve made our licensing practices much more flexible. We invite applicants and their foreign partners to work with licensing officers to come up with novel licensing approaches to meet the needs of any complex fact patterns.

To repeat: we are willing to work with exporters and reexporters to see if licenses for specific programs or topics can be streamlined to reduce the burden for the companies and also for the government. One company, for example, had over 1200 separate licenses to authorize transactions associated with a particular program. After spending some time thinking through the common denominators for the controlled activities, we were able to work with the company to re-write the authorizations and the conditions so that the entire program was covered with just four comprehensive licenses.

Before I brag about each of EA’s five offices, I’ll give you a summary of three country- specific policy issues that are significant.

Russia

As a result of Russian actions in Ukraine, the United States worked with its European and Asian allies to implement targeted sanctions to deter Russia from continuing its conduct that violates international norms. The U.S. Departments of Treasury and Commerce have implemented sanctions targeting individuals and entities involved in Crimea and eastern Ukraine, cronies of the Russian regime, as well as the Russian energy, defense, and financial service sectors. Under the EAR, we have implemented

U.S. sanctions by adding parties to the Entity List, adding license requirements for unconventional oil and gas exploration and production activities in Russia, imposing additional license requirements and more stringent licensing policy on defense trade with Russia, and imposing extensive license requirements for exports and reexports to Crimea. Throughout this process, we have coordinated these sanctions closely with the European Union, and we will continue to do so as we monitor Russia’s actions in eastern Europe.

Cuba

While Russia is an example of our work in tightening controls, not all foreign policy changes have the same result. Some changes include easing restrictions, and for the United States, Cuba is a prime example of this change. Following President Obama’s announcement in December 2014 of a new course to engage and empower the Cuban people, the Commerce and Treasury Departments have taken coordinated actions to further this aim. On the BIS side, we have published several rules amending the EAR to revise license exceptions, including the creation of new License Exception Support for the Cuban People, and to revise licensing policy for license applications for Cuba.

These steps have all been taken to support the Cuban private sector, improve communications, and meet the needs of the Cuban people. As a result of these changes, we have seen much greater commercial activity and interest in Cuba.

Iran

Another country that has generated changes to our export control and sanctions system is Iran and the implementation of the Joint Comprehensive Plan of Action (JCPOA). As a result of the JCPOA, the United States lifted nuclear-related secondary sanctions on that country. OFAC has taken the lead on implementing these changes. As before JCPOA implementation, in most cases, BIS does not require a separate BIS license for exports or reexports subject to the EAR that are authorized by OFAC. OFAC continues to require a license for the export or reexport to Iran by U.S. and non-U.S. persons of items on the Commerce Control List and reexports by U.S. persons of any item subject to the EAR to Iran. For the most part, these license requirements have not changed. It is important to note that a BIS license is required in addition to an OFAC license for transactions involving Iranian persons on the Entity List or if any party in the transaction is subject to a BIS denial order. Further, BIS continues to require licenses for deemed exports or deemed reexports involving Iranian nationals.

Now to brag about some of the specific accomplishments of each of the offices in Export Administration.

NPTC

The Office of Nonproliferation and Treaty Compliance is led by Alex Lopes. He and his staff, as always, have done a terrific job handling the oversight of exports of items on the CCL controlled by the Nuclear Suppliers Group and the Australia Group and Missile Technology Control Regime. They also supported a number of significant nonproliferation initiatives with partner countries. Notably, its export control cooperation initiative with India in aligning its export controls with that of the multilateral export control regimes resulted in India's successful accession to the MTCR and current consideration for membership in the Nuclear Suppliers Group. This year, India held its first national export control update conference due in large part to these efforts. The Office devoted significant time and energy in the ECR list review effort to obtain interagency agreement on the Category XIV and EAR bookend controls on chemical and biological agents.

The Office's Foreign Policy Division was busy with export policy for Cuba and Iran. It also planned, coordinated and executed over 90 Cuba outreach activities that provided essential information concerning relevant export licensing policy to over 3,200 individuals. In addition, the Office worked closely with the agencies involved in Iran policy to resolve issues related to the export to Iran of aircraft and aircraft parts in order to meet U.S. obligations pursuant to the Joint Comprehensive Plan of Action at the heart of the nuclear agreement with Iran.

A core component of BIS’ mission is insuring industry compliance with the Chemical Weapons Convention, implementation of the Additional Protocol to the U.S. – International Atomic Energy Agency Safeguards Agreement, and achieving the goals of the Biological Weapons Convention. The work of the Office’s Treaty Compliance Division often goes unnoticed; nonetheless, it has a key role insuring the United States meets its obligations to these international agreements.

In FY 2016, BIS processed 838 declarations and reports covering activities of 532 U.S. chemical facilities and trading companies. BIS also hosted 21 inspections of U.S. chemical facilities by Organization for the Prohibition of Chemical Weapons (OPCW) including one involving sampling and analysis and three involving the sequential inspections of facilities in geographical proximity to one another. Since entry into force of the Convention, BIS has processed 18,053 declarations and required reports and hosted 255 inspections (as at October 19, 2016).

International nonproliferation efforts reached a successful conclusion with the destruction, by a U.S. company, of precursor chemicals obtained from Syria’s Chemical Weapons program. This destruction was verified by inspectors from the OPCW hosted by a team from BIS.

For the Additional Protocol, BIS is responsible for collecting declarations on nuclear- related activities from U.S. industry, the Nuclear Regulatory Commission, and the Department of Energy. BIS recently dedicated funding to develop an Additional Protocol Reporting System which will reduce burden on both industry and government to submit, manage, and vet reports.

NSTTC

The Office of National Security and Technology Transfer Controls is led by Eileen Albanese. She and her staff, as always, have done a terrific job administering the controls for items that are controlled under the Wassenaar Arrangement. In addition to the day-to-day licensing work, they have done a significant amount of work in reviewing the comments received on the USML-CCL revisions and providing technical expertise to the final rules. In particular, this group took the lead on working through the technical, policy, and other issues associated with coming to a final rule on the USML Category XII and bookend revisions. This is also the group that handles most of Commerce's role in reviewing and commenting on commodity jurisdiction requests. In addition, this office has taken the lead these last two years in working through the complex and novel issues associated with re-negotiating the Wassenaar cyber intrusion rule. They are not done yet and will be very active on the topic going forward. In addition, this office shepherds the new satellite and space-related work that came over from State, which is a great ECR success story worthy of a whole separate session.

SIES

Our Office of Strategic Industries and Economic Security (SIES) is led by Mike Vaccaro. He and have staff have done a terrific job processing the 14,330 600 series license applications in FY 2016, and has processed more than 35,000 600 series applications overall since October 2013. SIES also continues to support numerous outreach and training events with U.S. and foreign industry and foreign governments to support the implementation of Export Control Reform, including participating in major international aerospace/defense shows in Europe and Asia and in seminars across the country.

SIES also continues to review industry’s use of STA and the use of other license exceptions associated with 600 series transactions, completing 60 such reviews in FY 2016.

During the past fiscal year, SIES has also worked closely with the Departments of Defense and Homeland Security to administer the Defense Priorities and Allocations System (DPAS) regulation in support of national defense programs and national emergency planning. In addition, SIES continues to report to Congress annually on the impact of offsets in defense trade. SIES updated its offsets reporting regulation in 2016.

In addition, leveraging our export control and industrial base expertise, SIES also supports the Committee on Foreign Investment in the United States’ review of the national security implications of foreign investments in the United States. In recent years, the number of transactions reviewed by CFIUS has increased. Although I cannot

comment on CFIUS specifics, I would like to acknowledge the important contributions our team makes to the CFIUS process.

OEXS

The Office of Exporter Services is led by Karen Nies-Vogel. She and her staff, as always have done a great job putting this conference and the west coast conference together as well as all the other work they do. Most of the things we're discussing at the conferences – the regulations -- are written and revised by the office’s Regulatory Policy Division, ably led by Hillary Hess, who gets special thanks for her fantastic work on the definitions rule. They have been the core behind the reform effort and literally every document that goes into the Federal Register. Special thanks to Bill Arvin who will be retiring soon after 42 years of government service.

Some representative statistics to show how much outreach and education are a core part of BIS’s mission: Its Outreach and Education offices in DC and California have responded to nearly 40,000 calls and emails. They have organized 92 ECR outreach events with 9925 participants. They organized 21 domestic conferences in 12 states and participated in 15 other conferences and 5 trade shows. They have participated in 13 AES compliance seminars and multiple CBP training conferences. Their web-based training tools have received about 34,000 hits. In the aggregate, we estimate that our outreach programs resulted in nearly 100,000 interactions with US and foreign persons last year. OEXS's compliance unit created a new compliance webinar this year that had over 1200 participants. It also visited 40 companies this year and provided counseling and assistance on enhancing compliance with the EAR.

My personal favorite is the 217 weekly ECR teleconferences we’ve held (and will be holding live this Wednesday). We estimate that over 15,000 people have dialed into them. Special thanks to Tim Mooney for his lead on the substance of the answers and Stephen Hall for shepherding.

OTE

OTE co-leads with DDTC an interagency working group to create the Single Licensing System. The initiative called STARS – Single Trade Application and Reporting System -- is in full swing. In April, the interagency group stood up a landing page on www.export.gov/ecrto direct new exporters to the appropriate agency for licensing information. The group is close to completing the identification of the data elements of the single licensing system. The agencies will then publish a set of proposed rules to obtain OMB data collection authority and industry comment. The group is beginning the process to design the system with the help of industry groups and software providers.

OTE and DDTC will hold roundtable discussions on STARS on Wednesday.

OTE continues to provide data analytics to inform policy decisions and support regulations, such as the Russia sanctions, Cuba policy and Export Control Reform. Also, in order to supporting the Secretary’s goal of “Data” in her strategic plan, OTE has stood up a data portal on the BIS website. Visitors to the site can view data showing trends of U.S. trade with foreign countries and the world relative to export controls.

OTE continues to liaison with U.S. Customs and Border Protection on export clearance issues, including the Automated Export System. It played a major role in initiating a BIS license decrementation program in AES on July 28, 2016 where exporters now receive from AES the balance of license values for every export shipped against licenses issued after July 28, 2016, and exporters will receive an alert message if they ship more than the value tolerance allowed for the license. It continues to clean up unnecessary burdensome requirements in AES, such as removing NLR Type C32, which was very confusing having to distinguish it from the other NLR Type in AES C33.

OTE also continues to work on a variety of studies in which they survey and assess sectors affecting the Defense Industrial Base. Given its unique authorization to survey companies, OTE is in the middle of assessments of industries of textile, footwear and apparel, semiconductor, the C-17 aircraft supply chain, rocket propulsion, and U.S. printed circuit boards.

Operating Committee

BIS’s Operating Committee (OC), with representatives from the Departments of Commerce, Defense, Energy, and State, is responsible for resolving interagency disagreement on specific license applications. Thanks to Susan Kramer and new chair Mi Yong Kim for having done such a great job this last year handle what are by definition all the hard cases. In FY 2015, 329 cases were escalated to the OC for dispute resolution. Of those 329 cases, 36 were further escalated to the Assistant Secretary-level Advisory Committee on Export Policy for resolution – almost all with unanimous vote outcomes to approve, deny, or condition. This is something I’m particularly proud of as leader of the committee.

End User Review Committee

Joe Cristofaro chairs the interagency End User Review, which handles Entity List actions. BIS published nine Federal Register rules that added 198 entities to the Entity List and removed another 19 based on formal requests for removal submitted by the listed entities. Of particular note, 81 entities were added to the Entity List pursuant to the continued maintenance of Russia-related sanctions. Another four entities were added for their involvement in a deliberate and elaborate scheme to circumvent U.S. export controls for sanctioned countries. As demonstrated through the nine rules published over the past year, the End-User Review Committee process continues to be an effective method for considering and deciding upon measured actions to control the export of U.S.-origin items to parties of concern. As one of several proscribed party lists maintained by the U.S. Government, the Entity List also remains an effective vehicle for informing U.S. exporters of specific parties that the U.S. Government has determined are acting contrary to U.S. national security or foreign policy interests.

I’d like to thank all the EA staff for their service and echo the President who reminds us that our nation's progress has long been fueled by the efforts of selfless citizens who come together in service to their fellow Americans to change our country for the better. The civil servants who pour everything they have into making a difference are the individuals who keep that democracy running smoothly and effectively. They demonstrate resolve and inspire optimism throughout our country.